Marathon's portfolio managers spend considerable time assessing whether company managers are on the side of shareholders when it comes to capital allocation, incentives and overall integrity.
Whilst Marathon is not an activist investor in terms of making outsize bets and then conducting public campaigns for change, our approach has been to meet with companies on a frequent basis over long holding periods and engage in discussions about decision making. We have a dedicated corporate governance specialist, Masanaga Kono, on the ground in Japan. There have been numerous private disagreements over the years and sometimes this has led us to express our concerns to boards. The approach is active in the sense of asking difficult questions rather than presuming that we know better on how a company should be run. On occasion, private engagement is ineffective and we feel that a more proactive approach is warranted. One recent example was with Lixil Group, a Japanese based toilet and plumbing business that Marathon had invested in for over 16 years. In November 2018 the company abruptly removed their CEO. Despite attempts to discuss this with management and the nominations committee, we were left with considerable concerns about corporate governance and disclosure. As a result, Marathon, together with other local and foreign shareholders, called an EGM. The new CEO and COO resigned and on 25th June 2019 a slate of new directors was elected, included the previous CEO Kinya Seto, who may well be reinstated at CEO.
Similar engagements have also been conducted in the UK, for example with IG Group.